The viability of healthcare reform

Fri, 04/02/2010 - 9:32amD.W. MacKenzie

Now that the healthcare reform bill has been signed, it will face legal challenges in courtrooms. However, the judges in these cases do not possess the authority needed to render a final verdict on healthcare reform.

The success or failure of healthcare reform ultimately depends upon whether or not it conforms to economic laws, rather than with the opinions of judges.

In order to judge healthcare reform by economic laws, we must ascertain its nature. The single payer and public option versions did not pass. However, Americans will be required to have health insurance, and employers will be pressured to provide it. Congress is funding healthcare through explicit taxes and new mandates for buying or supplying “private” health insurance.

Mandates amount to implicit taxation. These explicit and implicit taxes amount to a de-facto single payer. Since healthcare is headed towards political control, we must ask if this will result in a more efficient or more just outcome.

The healthcare industry is complex and subject to constant change. Complexity and change make industrial planning difficult. Plans must be adapted continuously through time. If the authors of healthcare reform knew about all change in advance, they could have written a bill that accounts for every contingency. Healthcare reform will actually be a permanent work in progress.

The fact that healthcare reform will be revised casts doubt upon the Congressional Budget Office forecast of financial savings. Given that this legislation will be revised — and has already been changed — we cannot assume that CBO numbers will remain true.

The CBO also predicted that Social Security would generate surpluses until 2016, but this system recently went into deficit. The costs of public programs tend to rise over time, but why?

Ideally, legislators pursue what some term “social justice” through redistribution. Everyone favors “justice,” but people have different opinions as to what constitutes a fair distribution of wealth.

No one comprehends all the factors that would have to enter into an actual estimate of “socially just” income distribution. Since “social justice” has no objective meaning, the pursuit of this goal always degenerates into power struggles among interest groups.

The reality of politics is interest groups competing for influence. Competition often controls costs, but not in politics. Political competition favors narrow and concentrated interest groups. Small interest groups organize more easily and divide gains fewer ways relative to larger groups.

Individual citizens cannot appreciably affect politics, and “the people” as a whole are too diverse and dispersed to organize against special interests.

Politics is driven by a few political powerbrokers (i.e., the Speaker of the House) and special interests. Anyone who believes that healthcare regulation will, as President Obama has put it, serve the American people, does not understand the economics of politics: special interest groups wield disproportionate influence and impose wasteful transfers.

We can see the failure of politics in Medicare. Medicare has problems with waste and is underfunded. The underfunding of Medicare is not an honest mistake. Politicians knew about the costs of baby boomer retirement decades ago, and they failed to set aside funds to cover these costs. They took the politically popular — and financially unsound — path of profligate spending and low taxes relative to obvious future burdens.

Americans who want to move in the direction of publicly financing healthcare have the best intentions. However, there is no way of realizing dreams of social justice or improved efficiency through politics.

The term “social justice” lacks any real meaning. Economic laws and history indicate that public programs result in wasteful transfers to special interests.

Healthcare does need reform. We should consider using the only system that really controls costs: competitive free enterprise.

[D.W. MacKenzie, Ph.D., is an adjunct fellow at the Independent Institute in Oakland, Calif., and a professor of economics at the U.S. Coast Guard Academy. The contents of this article do not constitute official views of the U.S. Coast Guard.]